Including Closing Costs and Sales Concessions in a VA Home Loan

Common Misconceptions of VA Loans
Common Misconceptions of VA Loans

VA will finance 100% of a purchase price for a primary residence and two common misconceptions of VA loans are that:

1) There are NO closing costs on a VA loan  (we heard this one again today) and…

2) Closing costs are automatically financed into the VA loan

These are both INCORRECT.

There are closing costs on a VA loan just like most of the other fees on other types of loans and there is a VA funding fee which can be financed on top of the base loan amount and over the appraised value.  A veteran is exempt from the VA funding fee though if the VA considers the veteran 10% or more disabled.  VA loans won’t allow the buyer’s closing costs to be added to the loan unless they are included in the sales price on the offer to purchase as seller paid costs for the buyer.  In addition, the maximum seller paid concessions for a buyer is 4% of the sales price which will allow for paying pre-paids (such as escrows and first year of insurances), repairs to the home not required by the appraisal, or even paying off buyer’s debts.  On top of that, VA allows for all “customary closing costs” to be paid by the buyer.  So between the two, usually they will cover all costs at closing as long as a sufficient amount is listed in the contract.

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Written By: Russell Smith